It may be wrong to be bearish until the fall

Avi Gilburt is author of
ElliottWaveTrader.net, a live trading room and member forum focusing on
Elliott Wave market analysis. Avi emphasizes a comprehensive reading of charts
and wave counts that is free of personal bias or predisposition. A lawyer and
accountant by training, he is also managing member of Gilburt Financial
Services, LLC, which provides financial markets analysis and consulting. His
Elliott Wave analysis appears frequently on sites such as SeekingAlpha, where he
is a certified contributor, and
TheTechTrader.com with Harry Boxer.

The market is currently set up to take us down as far as the low 1900s within the next two weeks. However, I think it may be premature to become uber-bearish just yet, as I am not yet convinced that this is the start of the big correction, based upon the current pattern setup. Rather, this current decline is likely still setting us up for a rally over the 2000 region, as long as we maintain support over our main support zone on the 60-minute S&P 500 E-mini futures
US:ESU4
chart.

After the market bottomed at the 1942ES level we noted several weeks ago in our weekend update, we expected a rally this past week to take us up to a minimum target of 1986ES. However, my expectation last week was that we would see a continued impulsive move higher, which would either lead to a blow-off top, or a corrective pullback into the 1950s, leading to much higher levels over 2000.

Unfortunately, the market only provided us with a corrective rally, which topped at 1974ES in only 3 waves early this past week, and then provided us with the expected pullback into the 1950's, along with follow through to the upside. But, because we did not see an impulsive rally in a 5 wave structure, my main perspective now is that it was a corrective rally, which topped as a b-wave at the bottom of our target region at 1986ES.

Since we struck that top, we have almost completed a 5 wave structure off that high, which, ideally, should provide us with lower lows on Sunday night, and possibly into Monday morning to complete 5 waves off the high. If this should occur, then we should see a corrective retrace back up on Monday and possibly into Tuesday before we continue down later in the week.

However, if the market heads up when it opens on Sunday into Monday, then we are only left with 3 waves down off the high, which is a corrective pullback, and we have no initial confirmation of a trend change to take us lower in the upcoming week. Without a 5 wave move off the highs, it likely means the market is heading to new highs sooner rather than later.

The main levels of support we will also need to watch for downside confirmation are 1965ES and 1958ES. Once we are able to strongly break those two levels, and assuming we are structured in an impulsive pattern to the downside, the expectation is that a minimum target of 1933ES will be seen, with the potential to drop as low as the 1913ES region. However, as long as those lower support regions are held, this decline is likely setting us up for an 80-130 point rally, taking us over 2000, into October. It will only be after that rally over 2000 that we will be able to see the larger, overdue correction that everyone is expecting day after day.

Alternatively, should the 1958-65ES region hold as support, we can see another rally to a higher high, and even potentially over 2000 earlier than expected. Unfortunately, it may take us until Wednesday to know if we will break this region of support. This is because if we see a 5th wave drop toward this region on Sunday or early Monday, it should be followed by a move back up before this region is broken as support. So, if by Wednesday this region has not broken as support, or we take out last week's high sooner than Wednesday, then we are either dealing with a bigger b wave, or something more bullish.

As far as the Russell 2000 ETF
IWM, +0.33%
and futures are concerned, they continue to provide us with very nice 5-wave structures to the downside, and only corrective 3-wave structures back up. As we witnessed, the last 3-wave structure kept us below the 116.45 resistance region I noted should be maintained as resistance last weekend. This is still leading me to believe that we could see a very strong decline this coming week, which would take us first to the 107 region, ideally on our way to the 95-100 region.

But as I have been saying for several weeks now, we need to see a strong break of the 112 level in the IWM to signal that our next target is the 107 region. Remember, once we see that strong break below the 112 region, the inability of the IWM to move back through it in a wave (4) of the wave iii down will maintain downside pressure on the IWM all the way down to the lower target region of 95-100.

As of the close on Friday, we are left with 3 waves up and 3 waves down. Therefore, I am only able to leave you with the two patterns outlined above, with us needing to know the next micro move on Sunday and into Monday in order to determine if we are heading to the low 1900s this coming week.

While we may have a set up for further downside developing on Sunday night in the equity markets, based upon the current structures I am seeing, it does not yet seem as though we are heading to the 1750-1800 region just yet. As I have warned before, this bigger correction seems to be delayed until the fall, as too many are too bearish to allow such a correction to take hold just yet.

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